Who's the First to Go?

Public employees are at the front of the firing line, paying the price for widespread voter angst.
July 2011
John E. Petersen
By John E. Petersen  |  Columnist
John E. Petersen was GOVERNING's Public Finance columnist. He was a Professor of Public Policy and Finance at the George Mason School of Public Policy.

Job cutbacks for public workers are all the rage. In New York, Mayor Michael Bloomberg, faced with a deficit in the city’s $68 billion budget, is proposing to eliminate 4,000 teachers. The savings: $270 million. Across the Hudson in New Jersey, lower local tax receipts and reduced state aid are leading to reductions in local budgets and the number of teachers. The township of Willingboro, N.J., for instance, is laying off 28 of its 130 teachers.

But teachers aren’t the only ones under the gun. In Massachusetts, the city of Lawrence has reduced its 160-person police department by 50 positions over the last two years, even as it sees its crime level increasing. Costa Mesa, Calif., in one of the more dramatic gestures, voted last March to give termination notices to 45 percent of its workforce in an effort to rein in public worker pay and benefits.

The discharges come at a high cost. When it comes to depressing consumption and causing economic hardship, loss of public-sector jobs has the same impact as those lost in the private sector. Between 1990 and 2008, state and local sector employment, which accounts for almost 15 percent of total national employment, added about 200,000 jobs per year to the economy. Much of the growth was driven by increasing public school enrollments. Today, the trend in jobs is in reverse. In 2009, total state and local employment started declining at a rate of about 10,000 per month; in 2010, it was 20,000 a month. So far in 2011, the job losses will likely continue to grow, creating a potential total loss of 800,000 jobs over the last three years. The greatest job losses are occurring at the local level, which is absorbing about 80 percent of the cuts.

These job losses, which are tied directly to the contentious issue of employee compensation, have been reinforced by reductions in federal funding. As the stimulus money has been spent, states have cut back on payments to localities. Meanwhile, localities, which direct much of their spending toward public education, are experiencing their own budget woes as property values continue to sag and tax revenues are moribund.

The public jobs controversy is also fueled by the question of how much public workers are paid. On its face, the average public-sector worker is paid about the same as a similar private-sector employee. But such comparisons are muddied by complicating factors. First, public-sector wages are heavily influenced by teachers who are more educated (at least in terms of college degrees) than the typical private-sector wage earner. Second, teachers typically get an extended summer vacation and sundry holidays that private-sector workers do not. Third, lower-skilled public workers are paid more than their private-sector counterparts -- but the reverse is true at the higher-wage, professional levels. Last, and most important in today’s debates, public-sector employees enjoy better health and retirement benefits, especially in terms of defined-benefit pension plans, than do typical private-sector workers. Much of the disparity stems from the fact that public employees are better organized. Thirty-seven percent belong to unions -- it’s even higher among teachers and public safety employees. Only 7 percent of private-sector employees belong to unions.

Much of the political battle over compensation has dealt with increasing the ability of localities to alter work rules for teachers and offer lower-cost local benefit packages. But in the broader context, there is a changing of priorities. Faced with declining economic prospects on a personal level, the average voter is no longer swayed by the idea of honoring “first responders” or reducing class size. Aging voters -- with mortgages underwater, unemployed kids living at home and worries about cutbacks in the federal entitlement programs -- are hunkering down. And public employees are at the front of the firing line to pay the price for this widespread voter angst.